Carrier aims for No. 1 after United, Continental merge

A new era beckons in Houston skiesOn day one, United-Continental CEO says airline intends to be No. 1

JENALIA MORENO, HOUSTON CHRONICLE

Published 5:30 am, Saturday, October 2, 2010

Photo: Brett Coomer, Chronicle

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A United Airlines 737 with CEO Jeff Smisek aboard lands at Bush Intercontinental Airport ahead of schedule on Friday, decked out in the new United Airlines paint scheme, which includes the familiar Continental logo on the aircraft's tail section. less

A United Airlines 737 with CEO Jeff Smisek aboard lands at Bush Intercontinental Airport ahead of schedule on Friday, decked out in the new United Airlines paint scheme, which includes the familiar Continental ... more

Photo: Brett Coomer, Chronicle

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Wearing United shirts, former Continental employees gather near the Continental sign at the airline's headquarters for photos. The airline denied reports that the sign would be removed.

Wearing United shirts, former Continental employees gather near the Continental sign at the airline's headquarters for photos. The airline denied reports that the sign would be removed.

Photo: Brett Coomer, Chronicle

Carrier aims for No. 1 after United, Continental merge

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It's official. Houston is no longer home to one of the giants of the airline world.

Continental Airlines and United Airlines merged Friday morning, taking the new carrier's headquarters to the old United's home in Chicago.

"We are starting today on our journey to become the world's leading airline," said Jeff Smisek, CEO of the combined carrier, called United. He was Continental CEO until the deal, first announced May 3, closed.

Smisek spent some of his day flying from Chicago to Houston aboard a jet painted with the United name and Continental's blue, white and gold logo. The 737 arrived at Bush Intercontinental Airport a few minutes ahead of schedule.

Passengers shouldn't expect to see many changes right away as it will take a year to 18 months to fully mesh the carriers, which will essentially operate for the foreseeable future as separate units of one company.

Travelers and employees alike were saddened by the loss of Continental.

"Being a major city and not having an airline is a disappointment," said Houstonian Vicki Gutierrez, who flies for business regularly.

At Continental's downtown Houston office buildings Friday, some employees wore black to mourn the loss of the airline that's called Houston home since 1982. "It's not a good thing," said one worker clad in a black shirt.

Otherwise, employees said they had not seen many changes.

"It's pretty much business as usual," said another worker who sat on a bench outside the Continental office tower. Employees said they didn't want to be identified for fear of losing their jobs.

Other Continental employees, including some wearing their new United t-shirts, posed for photos in front of the Continental sign at the corporate headquarters on Friday as rumors circulated the Continental sign would be removed. But an airline spokeswoman said there were are no plans to do so.

The two airlines don't fly many overlapping routes and so most job cuts are expected at the corporate offices and not at airports, Smisek said.

"The effects on the front line employees will be minimal," Smisek said during a conference call with reporters Friday. "People who want to move forward in the combined carrier be given an opportunity to do so."

Predictions of savings

The merger should generate $1 billion to $1.2 billion in extra revenue and savings for the combined carrier by 2013, Smisek said. That includes $800 million to $900 million of new annual revenue, in part by attracting more business travelers who tend to spend more on flying, Smisek said.

The airline hopes its extensive network will lure corporate travel agencies to book seats. The new United will also save about $200 to $300 million annually on technology, advertising and head count reductions, Smisek said.

However, Jamie Baker airline analyst for JPMorgan, expressed doubts in a report about such figures following similar projections by Delta Air Lines when it merged with Northwest Airlines in 2008.

"We've pored over Delta's results and quite frankly can't identify the $1.5 billion in synergies" that management claims, he wrote in a report released Friday.

As far as labor, the new airline will likely soon reach agreements with its pilots over wage and seniority issues, he wrote, but the issue of outsourcing flights to smaller carriers may prove sticky. "We do believe pilot-management discussions may worsen before ultimately getting better," he wrote.

The standalone United hired regional carriers to fly 70-seat jets and has contracts through 2019 for such flying. Continental, he wrote, lets regional carriers fly jets of less than 50 seats and turboprops.

"We have been hampered and competitively disadvantaged because of the biggest regional jets that we can fly are 50 seaters," Smisek said.

Pilots not celebrating

Outsourcing larger planes to regional jets could prove more profitable for the combined carrier. "That's a very important product for the business traveler, for the feed, for the benefit of all of our employees and for the profitability of the carrier going forward," Smisek said.

"When customers choose an airline, they rightly expect to receive service from that airline, with pilots employed and trained by that airline at the controls," the pilots of both carriers said in a joint statement Friday.

Pilots said they were not ready to celebrate the merger until a new joint collective bargaining agreement is reached and ratified by Continental and United pilots, both represented by the Air Line Pilots Association.

"Then and only then will management be able to call this merger a success and realize the advertised synergies," the pilots said.